Housing markets, expectation formation and interest rates

Arbeitspapier

Based on a behavioral stock-flow housing market model in which the expectation formation behavior of boundedly rational and heterogeneous investors may generate endogenous boom-bust cycles, we explore whether central banks can stabilize housing markets via the interest rate. Using a mix of analytical and numerical tools, we find that the ability of central banks to tame housing markets by increasing the base (target) interest rate, thereby softening the demand pressure on house prices, is rather limited. However, central banks can greatly improve the stability of housing markets by following an interest rate rule that adjusts the interest rate with respect to mispricing in the housing market.

Object Details

• ISBN: 978-3-943153-63-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BERG Working Paper Series ; No. 142

Classification and Topics

• Classification: Wirtschaft ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Central Banks and Their Policies ; Housing Supply and Markets
• Subject: housing markets ; heterogeneous expectations ; variance beliefs ; endogenous boom-bust cycles ; interest rates ; nonlinear dynamics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Martin, Carolin ; Schmitt, Noemi ; Westerhoff, Frank
• Event: Veröffentlichung
• (who): Bamberg University, Bamberg Economic Research Group (BERG)
• (where): Bamberg
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/191903
• Last update: 10.03.2025, 11:42 AM CET